Stock of this PSB has nearly doubled in 2 months; m-cap nears Rs 1 trillion

Shares of Indian Overseas Bank (IOB) rallid 5 per cent to hit the highest level in over eight years on the BSE in Wednesday’s otherwise weak intra-day trade. The stock of the public sector bank (PSB) touched Rs 51, its highest level since March 2015, on improved operating performance. 

In the past two months, the market price of IOB has nearly doubled or zoomed 95 per cent from a level of Rs 26.12 after the bank reported a solid set of numbers for the quarter ended June 2023 (Q1FY24), with improved asset quality.

In the last one year, the stock has skyrocketed 187 per cent, as compared to a 12 per cent rise in the S&P BSE Sensex.

A sharp rally in the stock of the bank has seen IOB's market capitalsation inch towards the Rs 1 trillion mark. Currently, IOB’s market capitalisation stood at Rs 95,079 crore, the BSE data showed.

As on June 30, 2023, the government held 96.38 per cent stake in IOB. Out of the remaining 3.62 per cent public holding, individual shareholders held 1.69 per cent stake, while Life Insurance Coporation of India held 1.2 per cent stake, the shareholding pattern data shows.

In Q1FY24, IOB reported 27.50 percent year on year (YoY) rise in net profit at Rs 500 crore, against Rs 392 crore in the year-ago period. Net interest income jumped 22 percent YoY at Rs 5,424 crore.

The bank's gross non-performing assets (GNPA) declined to 7.13 per cent from 9.12 per cent in Q1FY23. Net non-performing assets (NNPAs) of fell to 1.44 per cent from 2.43 per cent last year. The provision coverage ratio improved to 94.03 percent against 91.86 percent.

Meanwhile, CARE Ratings on August 10, reaffirmed the ratings assigned to IOB’s instruments with a stable outlook. The stable outlook factors in the CARE Ratings’ expectation that IOB will be able to sustain profitability while maintaining comfortable capitalisation levels.

CARE Ratings said the rating assigned to the debt instruments of IOB continues to factor-in the majority ownership by the government and its demonstrated funding support.

The rating agency expects continuation of the strong support by the govt. The rating also factors-in the long track record of operations with strong presence in South India, comfortable capitalisation levels, diversified advances book and deposit base with comfortable current account savings account (CASA).

The rating is constrained by moderate asset quality despite improvement seen over the past few years, with improvement in gross non-performing assets (GNPA) and gross stressed asset position. Although the bank’s earnings profile has seen considerable improvement in the last two years ended March 31, 2023, as against the earlier years, the level of profitability continues to be moderate, CARE Ratings said in rationale.

Meanwhile, analysts at Emkay Global Financial Services believe the banking sector’s rally (more pronounced in PSBs) was due to healthy growth/profitability trends, recent investment guidelines and news flow around housing loan subsidy.

Notwithstanding near-term margin contraction, the brokerage firm believes healthy growth and moderating LLP should continue to support profitability.

“We do not expect any meaningful asset-quality deterioration yet, but some caution needs to be exercised in lenders with higher exposure to unsecured loans or crop loans, given some early signs of stress in select pockets and the RBI’s recent red flag,” analysts at Emkay Global said in a report recently.